Francois Hollande Makes An Embarrassing Retreat On Industrial Policy

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The fate of two blast furnaces at ArcelorMittal's steel plant at Florange, eastern France, has now been decided. Despite threats by the minister for industrial renewal, Arnaud Montebourg, to nationalise the entire steelworks, talks with the steel-maker essentially concluded with an agreement that the company's plans to shut down the furnaces can proceed. The result for the president, Francois Hollande, and his government has been disastrous: not only has the government's credibility been further eroded in its handling of industrial policy, but its internal divisions raise the prospect of more battles in the future.

Mr Montebourg's threat to nationalise temporarily the Florange steelworks had always seemed far-fetched, given both legal difficulties and the potential economic costs. In response, Lakshmi Mittal, the steel group's head and main shareholder, had called the minister's bluff, setting a deadline of December 1st for the government to make up its mind. Following emergency talks between Mr Hollande and Mr Mittal at the Elysee Palace, an agreement was signed on November 30th. By this stage, Mr Montebourg had been stripped of any responsibility, with the prime minister, Jean-Marc Ayrault, taking direct charge.

With just hours to go before the expiry of Mr Mittal's deadline, Mr Ayrault announced that a deal had been reached. So embarrassed were the president and the prime minister by their climb-down that the contents of the agreement were initially left vague. However, they were soon leaked and published by the newspaper, Le Monde, on December 4th. They confirmed that the furnaces would be shut down, but included a promise by the company to find alternative work within ArcelorMittal for the 629 workers directly concerned (about one-quarter of the Florange workforce).

Other details revealed the extent of the government's retreat. The prime minister had initially indicated, with some satisfaction, that the steelmaker had agreed to invest EUR180m over five years in the further development of hot strip mill production at Florange, but the full document shows that the "strategic investment" component will be no more than EUR53m, with the rest spent on maintenance activities. The government had also entertained hopes that the Florange blast furnaces could be retrofitted with cutting-edge carbon capture technology-so-called ULCOS or ultra low carbon dioxide (CO2) steelmaking-but the agreement states bluntly that this would be impractical in the short term, especially given the present state of research and development (R&D) in the field.

The agreement does provide for all the metal packaging production in France of ArcelorMittal's Atlantic and Lorraine divisions to be concentrated at Florange. A consequence of this will be the temporary suspension of such activity at the Basse-Indre plant near to Nantes, the political fiefdom of Mr Ayrault. Fortunately for the prime minister, the company has promised that there will be no net job losses as a result, although the trade unions were less than reassured.

Divisions in the government are laid bare

The affair is likely to exact a long-term cost on the government's reputation. In the end, Mr Ayrault and Mr Hollande have felt obliged to pursue a course of action that has entailed the public humiliation of Mr Montebourg. The prime minister, unlike the president, has made no bones about it. He summarily dismissed the prospect of nationalisation during a television interview, and contradicted the assertions of his minister by stating that there was no credible buyer for the plant. The glacial relations between the two men were apparent when they appeared before the Parti socialiste (PS) parliamentary group in the National Assembly (the lower house) on the same day Le Monde revealed the details of the Florange agreement.

Mr Montebourg's position in government has certainly been weakened. It has emerged that he offered his resignation to Mr Hollande. In doing so, the former had reportedly stressed to the president that he was speaking not as the minister for industrial renewal, but as the erstwhile leader of the hard left of the PS, who had decisively secured Mr Hollande's nomination as the party's presidential candidate. Mr Montebourg can certainly draw on support from within the PS and from the trade unions. His humiliation will complicate the government's declared aim of winning over the trade unions to the cause of comprehensive labour market reform. Mr Ayrault, however, may conclude that the day when Mr Montebourg is deemed dispensable has moved a little closer.